How expansion creates complexity and why shareholders should watch out when CEOs speak about emerging markets.

3. ”3000 at Facit
have to be fired”

4. The Swedish
company Facit
collapsed when
electronic
calculators
disrupted their
mechanical
products.

5. The example is
often used in
order to illustrate
how successful
firms can go
under rapidly due
to a technological
shift.

7. This description should be regarded as accurate.

8. … However, it should be pointed out that the
company started to encounter problems long before
the electronic revolution destroyed Facit.

9. It is true that all
curves had been
pointing upwards
during the 1960s…

10. ”Company turnover
above 1 billion.”

11. The acquisition of Addo was one reason for
this (the leap in 1965-66 below).

12. One should also bear in mind that the inflation
rates were very high in the 1960s.

13. However, all different measures of profitability
declined during the 1960s, before electronics
became a significant threat.

15. One important reason
for this is the
increased
competition.

16. Sweden had stayed
outside the second
world war and could
benefit largely from
this during 1945-1960.

17. A huge demand and a
low supply in those
years had given Facit
a fantastic position.

18. But over time,
competition became
much tougher.

19. However, an important reason for the
declining profitability also seemed to be
the aggressive expansion that Facit
undertook in the 1960s.

20. A larger organisation implies an increased
complexity, more structures, more
bureaucracy and less control of the business.

21. ys

22. ”Facit enters Mexico.”

24. The Mexican
expansion became
a failure since Facit
could not handle
the labour market
regulations
properly. Facit lost
millions here every
year.

25. ”Facit enters India.”

26. … India…

27. … did not become a success either.

28. ”Facit and Odhner get a
common sales organisation.”

29. Odhner had been a part of the Facit group since the
mid 1940s. The integration of the two companies did
not take place until 20 years later! This was not
strange at all back in those days.

30. ”Addo becomes a part of Facit
but keeps its sales organisation.”

31. The acquisition of Addo
became a failure for several
reasons…

32. Facit also built new sites around Sweden…

33. … In Stockholm…

36. In Åtvidaberg a new site was built.

39. The Strömstad site expanded.

42. When it was stated later on that the turnover had
reached above 1 Bn, this had happened at the
expense of Facit’s profitability.

43. The international expansion turned out to be much
more difficult than had been anticipated.

44. It is not the same thing to manufacture
calculators in Sweden as in Mexico.

45. Companies which ignore this fact and enter
’emerging markets’ usually get into trouble.

46. The integration of acquired companies does usually
not end up in the way that was intended either.

47. Detta bör absolut inte betraktas som orsaken
till Facits slutgiltiga fall…

48. … The reason why Facit collapsed should be
spelled electronics.

49. This
slideshow can
be thought of
as an
illustration of
how difficult it
is to grow and
maintain good
profits.

50. A quick
geographical
expansion results
in an increased
complexity and
less control.

51. … which in the long
run creates a lower
profitability.

52. To all shareholders:
When top management speaks about acquisitions,
synergies, global expansion and emerging markets
– start to glance at the sell button.

53. Thanks to ’Brukskultur Åtvidaberg’ och the
municipal government of Åtvidaberg. The Facit
archive is a fantastic source.

54. Christian Sandström is a
PhD student at Chalmers
University of Technology in
Gothenburg, Sweden. He
writes and speaks about
disruptive innovation and
technological change.
www.christiansandstrom.org
christian.sandstrom at chalmers.se